Over the past two years Romania has registered significant progress in relation to the absorption of EU Structural and Cohesion Funds. Although, at the end of 2012 Romania had an absorption level of EU funds of only 14.9%, statistical data recorded in December 2013 show that the value of this indicator had reached approximately 33.5% by then. At present, the current absorption rate of Structural and Cohesion Funds for the 2007-2013 financial framework has reached an estimated value of 53.12% (i.e. EUR 10.73 billion), which is approximately 1.67 times higher than its level at the end of 2013, and 3.74 times higher than its level at the end of 2012.
The results obtained over the past two years can be explained through the adoption of a set of measures by the Romanian authorities in charge of the administration of Structural Funds. The most important measures aimed at increasing the rate of absorption are presented below:
For the allocations for the 2014-2020 financial framework, Romania is currently undergoing negotiations with the EC to complete and approve the OPs. The Partnership Agreement, approved by the EC in August 2014, has already established a set of simplifying measures to facilitate the absorption of EU funds. Thus, the institutional configuration corresponding to the 2014-2020 framework has been compressed, the Managing Authority attributions going only to the Ministry of Regional Development and Public Administration, the MARD and the MEF. So far Romania has sent, formally or informally, the following OPs to the EC: OP Large Infrastructure, OP Competitiveness, OP Human Capital, OP Technical Assistance, Regional OP, OP Administrative Capacity, OP Aid to the Most Deprived and NPRD. In addition to these programmes, Romania will receive non-reimbursable financial assistance through the OP for Fisheries and Maritime Affairs, 12 European Territorial Cooperation Programmes (7 programmes corresponding to Cohesion Policy, 4 cross-border cooperation programmes corresponding to Neighbourhood Policy and the IPA Cross-border Cooperation Programme), the Youth Employment Initiative, Connecting Europe Facility, Direct payments to farmers etc.
By the end of December 2014, the EC had already approved three OP through which Romania will receive EU Structural and Investment Funds corresponding to the 2014-2020 programming period. The three approved programmes are OP Competitiveness, OP Technical Assistance and OP Aid to the Most Deprived.
The priority funding areas and the corresponding financial allocations for the 2014-2020 programming period are presented later:
Source: Ministry of European Funds, Resume of the Partnership Agreement with Romania (2014-2020), Inforegio
Although the past few years have seen a significant improvement in the EU funds absorption rate, Romania continues to perform poorly compared with other countries. By the end of 2014, Romania ranked last but one among EU Member States, with the amounts paid by the EC representing 45% of the total financial allocation for the European Regional Development Fund, the Cohesion Fund and the European Social Fund, both for the Convergence and the Territorial Cooperation Objectives. Romania bettered only Croatia, which became an EU Member State in mid-2013 and occupied last place among all other Members States in CEE.
Source: EC, Inforegio, EU Cohesion Funds (key statistics), Percentage of Available Funds Paid Out by the Commission 2014
Note: The absorption rate represents interim payments made by the Commission, excluding pre-financing.
The causes that led to this situation can be identified at all stages of programme planning and implementation during the 2007-2013 financial framework.
For most OPs the launch of the calls for proposals did not occur in 2007, but 12-18 months from the start of the 2007-2013 programming period. This fact was reflected in a low value of expenses reimbursed by the EC between 2007 and 2009, with negative effects on the absorption level for that period. These delays in launching the calls for proposals resulted in additional pressure even in the following years of the 2007-2013 programming period. The Romanian authorities responsible for the management of EU funds needed to compensate for the time lost to ensure the full absorption of financial allocations for the first years of programme implementation. As the new OPs had not yet been approved by the EC by the end of 2014, it is hoped that this situation will not be repeated in 2014- 2020.
Firstly, the numerous socio-economic development needs identified at the national level led to a fragmented structure of the OPs, which resulted in low fulfilment levels. Furthermore, a series of interventions targeted at similar categories of beneficiaries were dispersed in different Operational Programmes (financing small enterprises through the Regional OPs and other private entities through the Competitiveness OP), which led to fragmentation and reduced efficiency of the financial support offered.
Secondly, the development needs specified in the programming documents corresponding to the 2007 – 2013 financial framework were identified in the context of EU funding planning, without being supported by a genuine analysis of the country’s development needs and growth potential.
Consequently, identifying national development priorities was more the result of Romania’s obligations as an EU Member State rather than the result of a comprehensive, rigorous analysis of the country’s development needs. As a consequence, the areas financed through EU funding were not always connected to national strategic priorities and did not entirely reflect public policy adjustments. The lack of an articulated strategic vision of Romania’s development needs and the insufficient correlation of intervention areas financed through EU funds with national strategies might also impact upon the results for the 2014-2020 programming period.
The relatively low level of EU funds absorption in 2007-2013 was also caused by the numerous problems and difficulties encountered by public and private beneficiaries during the preparation and the implementation phases of the financed projects.
The limited experience of the Managing Authorities’/ Intermediate Bodies’ staff in preparing tender documentation for technical assistance services, the insufficient number of qualified staff in public procurement, the restrictions on hiring new staff for vacant positions in the public sector as a result of the measures imposed by the GOR during the economic crisis and the increasing number of contested procurement procedures led to significant delays in the use of technical assistance resources. Delays in contracting technical assistance services had negative effects on the pace of the project evaluation and approval stages, as well as on the assessment of the reimbursement claims and the duration of payments, with direct repercussions on the absorption rate.
Remuneration of civil servants dealing with EU funds affected the absorption rate, as it relates to the capacity of the public authorities to recruit and retain professionals with experience of EU funds management and administration. Several Managing Authorities and Intermediate Bodies (e.g. MA SOP DHR) have also been faced with high staff turnovers, the insufficient institutional capacity reducing their chances of achieving the absorption targets. Recruitment freezes have significantly increased the workload for the staff responsible for the management of European funds. The low level of salaries as well as the increased workload induced by hiring restrictions resulted in additional staff turnover.
The main causes that led to such delays were:
In addition, the Managing Authorities’ and Intermediate Bodies’ staff proved to be insufficient, leading to a slow pace of processing the reimbursement claims and a low absorption rate.
The FIC’s recommendations aim to advance measures that could contribute to the acceleration of the EU funds absorption process, corresponding to the 2007-2013 programming period, as well as measures to improve the management of EU funds allocated for the following programming period.
2007-2013 Programming period
For the 2007-2013 programming period, the FIC recommends speeding up the launching of calls for proposals and prompt contracting of all funds still available within the OPs, including technical assistance. Urgent contracting of unused resources for technical assistance could provide the expertise necessary for the effective evaluation of application forms submitted under the latest calls for proposals. Also, contracting external experts from technical assistance resources could remove current deadlocks in the departments responsible for processing reimbursement claims and performing monitoring and control missions.
In order to maximize the absorption rate by the end of 2015, the FIC recommends rigorous monitoring of both the savings registered within funded projects and the projects at risk of termination, as well as contracting new projects on the reserve lists to counter the effects of the two factors mentioned above. To avoid decommitment of significant amounts at the end of the 2007-2013 financial framework, rigorous planning is required, as well as a permanent update of the centralised timetables of the reimbursement claims (established by the Managing Authorities, based on the individual timetables corresponding to each project), strict monitoring of the commitments undertaken by beneficiaries in relation to the submission of reimbursement claims and the situation of payments.
To avoid negative effects on the absorption rate and the issuing of new debit notes by the EC for projects with a value of over EUR 5 million, which will not be finalised by 31 December 2015, the following issues should be taken into account:
2014 - 2020 programming period
For the following programming period (2014 – 2020), the projects to be financed from European funds should be correlated to a greater extent with public investments sustained from governmental sources, so that all public funds, regardless of their financing source, will be allocated according to national development priorities. The need for inter-ministerial dialogue enhancement is now more pressing that ever, to identify and rank Romania’s main strategic development directions. Defining a clear set of development priorities is a prerequisite for ensuring that projects co-financed by the EC and those financed from budgetary sources complement each other better, with positive effects on the sustainability of the support measures for the national economy.
An effective coordination of all public funds could be achieved provided that Romania implements the multiannual budgetary planning on projects and programmes, in close correlation with the 2014-2020 programming period. The allocation of state funds resources to credit holders should reflect their capacity to propose and implement European projects with significant impact on local communities. Such a measure could lead to a more efficient use of the different financing sources (EC, state budget funds).
The experience gained during the 2007-2013 programming period shows that the Romanian authorities should concentrate their efforts towards a more efficient use of technical assistance resources.
According to EC Regulation no. 1303/2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund, general provisions on the European regional Development Fund, the European Social Fund and the Cohesion Fund for Fisheries and Maritime Affairs and repealing Regulation (EC) no. 1083/2006, Member States should ensure that, by 31 December 2015, all exchanges of information between beneficiaries and a managing authorities, the certifying authority, the audit authority and intermediate bodies will be made through electronic data exchange systems. Taking into consideration that these requirements are a condition for the accreditation of the management and control system, national authorities should adopt the necessary measures to develop and test this system as soon as possible.
Launching the procurement procedures for technical assistance services should be adequately correlated with the planning of the calls for proposals, thus optimising the use of outsourced resources, while avoiding new blockages within the Romanian authorities responsible for the administration and management of EU funds.
From the very start of the next programming period, activities such as evaluation of application forms, preparation of financing contracts, assessment of progress reports and reimbursement claims or the evaluation of OPs could be thematically grouped and outsourced to private entities through framework agreements. This measure could lead to a decrease in the number of public procurement procedures launched, with positive effects on both the efficiency of the EU funds management mechanism and the absorption process.
Speeding up the absorption of EU funds could also be enhanced by modifying the public procurement laws and regulations, in such a way that technical assistance contracts are awarded based on the best value for money principle rather than the lowest price award criterion.
In addition, technical assistance resources should be used to a greater extent to increase the salaries of the Managing Authorities’ and Intermediate Bodies’ staff involved in the management and administration of EU funds. This measure could enhance the motivation of existing staff and attract suitably skilled new professionals specialised in EU funds management and administration.
Improving the absorption process of EU funds over the 2014-2020 programming period could be achieved by increasing the role of the financial institutions and by successfully using various financial instruments. Speeding up the EU funds contraction and absorption processes could be achieved by expanding the use of the wholesale absorption system. This system has already been used within the JEREMIE Initiative and consists of the involvement of commercial banks in the financial frameworks related to OPs. A similar mechanism, where commercial banks have been involved in fund disbursements to beneficiaries has already been used in the case of the European funds for agricultural activities. The FIC recommends the use of wholesale absorption by increasing the involvement of the banking sector in various stages of the selection and implementation of EU co-financed projects. One option could be to group the projects by implementation type, with the grants for the private sector being transferred into financial engineering instruments and channelled via financial institutions. In this way, the expertise of the financial institutions could be used, while the authorities' efforts could mainly be directed towards coordination activities, monitoring, results evaluation and realignment of economic development policies and strategies in line with other public financial resources (state budget/ state aid).
Financial institutions have extensive experience in granting commercial loans and their potential involvement in the absorption of EU funds may help increase the leverage effect on EU funds allocated to infrastructure projects. Besides, as a result of their increased involvement in the EU funds mechanism, public financial resources may be used more effectively to finance the specific priorities of public entities.